On a summer day in 2016, Jason Schappert didn't expect to hurt himself at the gym. Nor did the online aviation school founder--who was then a fit 28-year-old--expect that a strained back muscle would land him in a chiropractor's office deeply considering nixing his company's health insurance policy.

It was his chiropractor's offer to become the primary health provider of chiropractic care for Schappert's entire 19-person staff that set things off. It was an odd proposal, he thought. After all, Schappert's Ocala, Florida-based company, MzeroA.com, had health insurance, and he wasn't accustomed to making side deals with individual doctors. Yet if he did--mixing in deals with other practitioners and adopting a stop-loss insurance plan for emergencies, too--he learned, his company's health benefit costs could plummet and his employees' out-of-pocket health-related expenses could disappear entirely.

"One day, it clicked: We've got the gym; we've got the chiropractor. We've got concierge medicine," says Schappert, whose company landed on the 2019 Inc. Best Workplaces list, in part thanks to the success of the program. "There's no reason for insurance, short of something catastrophic. We have everything we need."

What Schappert and his team stumbled into back then--a type of "self-funded" or "self-insured" health care option--is not new; it has long been in use among larger firms. It is, however, growing in popularity among small companies. Among firms with fewer than 200 employees, 17 percent of covered workers are enrolled partially or completely in plans where employers take on the financial risk for providing health care benefits to employees. That's according to the 2019 Kaiser Family Foundation's Employer Health Benefits Survey. The 2018 survey showed that 13 percent of workers at firms with fewer than 200 employees had some form of self-insured plan last year, while 15 percent of covered workers at smaller firms utilized the option in 2017.

In practice, for companies like MzeroA.com, taking out the middleman--that is, paying for claims out of pocket instead of paying a predetermined premium to an insurance company--has led to savings. By Schappert's estimate, MzeroA.com's current coverage suite--which he dubs its "vitality plan" and comprises a series of flat-fee, company-paid partnerships with local health care providers--costs $500 to $600 per employee each month. That's down from a total of $1,200 to $1,600 per employee per month under the company's old plan. Employees went from paying $300 or $400 a month--plus $90 co-pays for doctor visits--to nothing.

The Risks of DIY

Despite the promise of lower costs, the downsides of self-funded plans are plentiful and should be met with caution, says Jeff Becker, a senior health care analyst at Forrester. "You're going to pay the claims yourself," he says. "And there's more volatility in cash flow for a small business than a medium or large business."

The riskiness of "stop-loss" insurance, also known as "excess" insurance, is just one caveat. Typically, stop-loss plans cover only emergency-room visits and offer basic benefits like annual checkups and vaccinations. That leaves routine medical care like some doctor's visits and prescription drugs uncovered. Large companies can often negotiate better rates than smaller companies, which have fewer employees and thereby less heft, says Becker.

Budgeting for these plans may be difficult for some companies to handle. Stop-loss plans typically come with individual annual deductibles--which must be paid before a plan will kick in any funds--ranging between $10,000 and $15,000. And while most stop-loss plans offer to cap out-of-pocket costs, services that aren't covered by the plan--prescription drugs, for instance--don't count toward that limit.

Then there's the paperwork burden attached to self-funded plans, which can scare away small employers. Besides inking initial deals with practitioners, there are plenty of billing documents and tax forms to complete. Taking this on yourself is where the biggest savings come in, says Becker, but dealing with all the paperwork isn't for the meek.

For his part, Schappert shrugs off the paperwork. "The concierge doctor has our credit card and charges it. The chiropractor is the same," he says. "Everybody uses a corporate card to pay for their gym memberships wherever they want to go. There are no reimbursements, there's no tracking stuff down. Everything's on autopay and autopilot." Furthermore, the plan hasn't changed his staffing needs, as he can manage on his own. Should workers want to purchase additional health insurance, they can, adds Schappert, but they'll need to pay for it themselves.  

Schappert does admit he's not fully prepared if a major medical crisis were to strike his staff. To this point his company's "vitality plan" has yet to be tested by chronic illnesses or other serious health issues. Even so, he remains optimistic. "I think we'd come together with a crowdsourced solution," says Schappert, suggesting that he wouldn't fire workers just for long-term absences due to illnesses, and that his community would help amid a health crisis. "Together, we're pretty darn smart."


How to Do DIY:

Going it alone can be complicated. Consider these three tips for helping ease into self-funded insurance:

1. Set up a reserve account. Keeping a healthy amount of cash reserves on hand in the form of a trust fund should be a top priority for companies with self-funded plans. To pay for would-be claims, Good Neighbor, a Gilbert, Arizona-based insurance company, recommends setting aside at least 20 to 25 percent of your company's total annual claims, noting the size of those reserves can fluctuate depending on the nature of a company's policy.

2. Check your work. If you think the paperwork will be too intense, help is available. Options include Collective Health and Castlight Health in San Francisco, and HealthSparq in Portland, Oregon, which aim to minimize the administrative burden of self-funded plans. They offer services like claim review, payment tracking, and performance measurement. (Collective Health and Castlight Health declined to cite specific price points, and HealthSparq didn't respond to a request for comment by the time of publication.)

3. Seek professional advice. There are regulatory and economic considerations that need to be weighed, Becker says. After all, self-funded plans are still subject to federal and state laws governing the health care industry, and that's a thorny field to navigate without experience. "An advisor will be able to help small businesses through the process--from decision making to planning and execution," he says. "This is not an endeavor to pursue without support."

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